Merger likely to win approval

Dubai: Amlak Finance PJSC and Tamweel PJSC, the Dubai mortgage lenders, are likely to win creditor approval for their merger, Moody's Investors Service said.

"It's in nobody's interest to have Tamweel and Amlak going into default," said Moody's Paris-based analyst Anouar Hassoune, who rated Tamweel bonds issued last year.

The Amlak and Tamweel merger may help revive the region's mortgage market which was hurt by the global credit crunch and easing real estate prices. The UAE government took control of Dubai's biggest mortgage providers in November, suspending their shares and blocking new lending, as the financial turmoil caused house prices to plunge by almost 50 per cent since their peak in August, according to Colliers International.

Both companies owe more than $1.5 billion in debt to their lenders. Amlak has about $700 million in Islamic bonds and loans outstanding, Bloomberg data show. Tamweel has $300 million of bonds outstanding and $517 million in loans, according to the company's financial statement. All the debt complies with Islam's ban on interest payments.

The price of Tamweel's bonds due 2013 has slumped to 62 cents on the dollar, from 99.6 cents at the sale last August, Bloomberg data show.

Amlak and Tamweel shares lost more than 80 per cent last year before they were suspended, reducing Amlak's market value to Dh1.53 billion on November 20 from Dh7.8 billion in June, and Tamweel's to Dh990 million.

Tamweel also borrowed $1.22 billion from banks in the form of short-term loans known as Wakala financing.

Tamweel Chairman Shaikh Khaled Bin Zayed Bin Saqr Al Nahyan said last month that a new financial structure will be announced in a "few weeks."

"These two entities were struggling and if the merger ends up creating strong entities then bondholders will be happy about it," said Abbas Hasan, managing director of investment banking at Mashreq PSC, whose Islamic unit was one of the lead managers for Tamweel's bond issue last year.

"Loans will certainly have restrictions on mergers and you have to get consent from lenders. It's time consuming. These things require 100 per cent consent."

Dubai borrowed $10 billion from the UAE central bank by selling five-year bonds in February. The sale was part of a $20 billion medium-term note program intended to help state- affiliated companies struggling to raise cash.